The testosterone of trading

Changes in hormone levels may affect success in the financial markets.

Geoff Brumfiel

Books and films often dramatize financial-market traders as macho gamblers. Now there may be scientific evidence to back up that pop-culture image: two researchers have linked testosterone levels to the success of traders in one London market.

John Coates, a trader-turned-neuroscientist at Cambridge University, UK, started the study after what he saw during his time working the markets: floor traders became frenzied during big winnings, then deeply depressed during downturns. "It was sort of classic manic behaviour," he says.

The hormones testosterone and cortisol may reflect different stress triggers.GETTY

He says that he began to suspect that hormones, specifically testosterone, might be involved because the few female traders appeared to him to be "relatively unaffected".

To find out, Coates and his Cambridge colleague Joe Herbert followed 17 male traders for 8 consecutive business days at a firm in London. The researchers took saliva samples from the group before and after the bulk of the day's trading. They analysed the levels of two hormones: testosterone and cortisol, a hormone that is produced in response to uncertainty.

Cause or correlation?

The results, appearing today in the Proceedings of the National Academy of Sciences1, were clear according to Coates: "Traders had an above-average gain on the days their testosterone was above average." In 14 out of the 17 cases, the traders earned more money on days they had elevated morning levels of the hormone.

Was the testosterone behind the winnings? Coates thinks so. But co-author Herbert cautions that the results aren't strong enough to prove that testosterone is driving risky behaviour: "It remains a correlation, not a causation," he says.

Levels of cortisol, on the other hand, appeared not to correlate with winning or losing. Rather, the hormone seemed to track with the volatility of the market itself, a factor which may have made traders' days more stressful.

Hormonal highs

Coates says the findings point to an intriguing possibility — that hormones may be driving irrationality in the markets. The dizzying highs seen in market 'bubbles' may be pumped up further by elevated testosterone levels in traders, while crashes and sell-offs could be exacerbated by cortisol, he speculates.

The small sample size makes that speculation a stretch, cautions Hans Vermeersch, a biosociologist at the University of Ghent in Belgium. Vermeersch, whose own studies have shown a link between testosterone and risk-taking in teenagers, says that many other factors, such as sexual activity, diet and even the morning commute, could be contributing to traders' hormone levels. Still, he says that the paper shows that markets have an influence as well.

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"The results don't really surprise me," says Benedict Stoddart, an interest-rate trader at a London firm. "When you are making and losing money, there is an emotional response." But, he adds, that doesn't mean that the popular view of traders as testosterone-fuelled mavericks is true. In reality, most employers want traders who try to remain calm, despite their raging hormones: "Testosterone is not something that banks would look for," he says.